The Multinational Enterprise in the World Economy

Abstract

One of the most remarkable economic phenomena of the postwar period has been the rise of the multinational enterprise (MNE). An MNE may be defined as an enterprise which owns and controls activities in different countries. No economic organisation in post-industrial society has evolved so quickly and to such a high degree of sophistication as the MNE. The closest parallels are to the trusts and cartels which rose to prominence about the turn of the century. But these were only national in scale, their international operations being governed by a loose federation of business leaders rather than by direct control from a corporate world headquarters. The growth of the cartels was responsible for an increase in government participation in economic life through the enactment of antitrust laws; it also inspired the development of the economic theory of imperfect competition, which revolutionised economic thinking on the basic issue of resource allocation. Something of a similar revolution is required today. The growth of the MNE has caught both governments and economists unawares. Governments organised on a national scale find it difficult to exert controls or sanctions against international firms, since competition between host nations for the benefits of foreign direct investment ensures that a restrictive policy toward MNEs will only succeed in driving out foreign investors to a more favourable climate.

For a recent comparison of US and Japanese patterns of foreign direct investment see K. Kojima, ‘A Macroeconomic Approach to Foreign Direct Investment’, Hitotsubashi Journal of Economics, 14(1973), 1–21Google Scholar